7 Habits of successful retirement savers

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Successful retirement savings habits
What's the secret to effective retirement saving and investing? Two Merrill Lynch strategists share their take on what they've found most confident investors have in common.
Successful retirement investors share a few key traits. Here, our retirement strategists share the habits these investors follow:

1. They start saving and investing as soon as they can.

"If you're young, it's critically important to realize that you have what older investors don't: more time to build with compound interest," says Michael Liersch, head of behavioral finance and goals-based consulting, Merrill Lynch. "The time value of money is on your side."
"Even if you can only invest a modest amount in the beginning, starting early is a total game changer," says David Laster, head of retirement strategies, Merrill Lynch Wealth Management.
To illustrate the power of compounding over time, Laster suggests looking at the difference between three investors who start saving at ages 25, 35 and 45. The older investors must save substantially more each month until age 65 to get close to the amount that accumulates and potentially grows through compound interest for the investor who started at a much younger age.
Saving for retirement early can make a big difference
What you can do now: If you've been putting off saving more for retirement, get started today with Merrill Edge®.

2. They invest intentionally—with a purpose, not just a number.

Investors who are successful in pursuing their retirement goals have thought not just about accumulating a large sum of money, but also about the specific "job" the money will do when they get to retirement, such as covering day-to-day expenses or allowing them to travel or start a business. Liersch calls this "intentional investing."
"The more clearly you can visualize what the money you are saving and investing is meant to do for you in the future, the easier it is to focus on creating a strategy to have enough money in place and stick to it," Liersch explains. Posting photos of your goals or writing them down can make them more intentional as well, he says, because it gives you a concrete picture of what you are aiming for as you juggle everyday spending and saving priorities.
Thinking in terms of "buckets" can be helpful too—deliberately saving different amounts of money toward each goal and allocating your investments based on how near or far away each goal is.
Consider how your financial goals and investments align
What you can do now: Get help defining your retirement investing goals and priorities with more insights and tools from Merrill Edge®.

3. They plan for emergencies.

Having a separate emergency fund to cover large, unexpected expenses helps successful investors avoid tapping into their retirement investments to pay for them. The goal is to save enough to cover at least six months' worth of living expenses.
In addition, don't forget the importance of having adequate insurance to protect yourself and your family against the huge financial impact to retirement savings that an accident or health issue may cause. That may include life and disability insurance, auto insurance and property and liability coverage for your home, apartment or condo.
What you can do now: Learn more about how to prepare for emergencies.

4. They automate their savings.

Having money automatically deposited1 from a paycheck into a workplace retirement account or from a bank account into an IRA or SEP-IRA can make investing or accumulating for the future virtually effortless. If there is an opportunity to make automatic increases each year that can be a plus as well.
But remember, putting your investments on autopilot can have its own set of risks. "Setting it and forgetting it can be useful, but it also can lead you to forget to actively manage your retirement future—committing to increasing contributions over pre-defined time periods or rebalancing your investments on a regular basis," cautions Liersch.
Laster agrees. "Consistently increasing your contributions can make a huge difference," he says. As an example, he compares the hypothetical outcome for a 35-year-old worker who invests just $250 per month ($3,000 per year) every year for 30 years versus a 35-year old colleague who gradually increases his monthly investments over five years and continues to save at the higher level. In the end, the second investor who methodically increased his contribution might have nearly twice the savings of the first.
Regularly increase your retirement plan contributions
What you can do now: Take advantage of any automatic1 increase program that your employer may offer. If you currently contribute to a Merrill Edge IRA or SEP-IRA, sign up now for the Merrill Edge Automated Funding Service.

5. They take advantage of their employer's matching contribution.

"If you are fortunate enough to have a company match, it's a real missed opportunity not to use it," says Laster. "You're basically getting a return right away. And because the money for a workplace plan may be taken out before taxes you may have additional tax savings2 as well."
What you can do now: At the very least, make sure you contribute enough to your workplace plan to take full advantage of your company's match.

6. They create a diversified portfolio of investments—including stocks.

Even if they lean toward being conservative with their investments, successful retirement savers and investors have learned that adding some stocks to the investment mix can help them stay ahead of inflation assuming they are willing to take on more risk.
Example impact of 2% inflation on retirement savings
What you can do now: If you're a Merrill Edge client, check your current retirement account allocation to stocks with the Asset Allocator™. If you're not a client, find more about the potential value of diversification for your retirement investments.3

7. They are conservative about spending.

The most successful retirement savers are as committed to wise spending as they are to deliberate saving. That includes:
  • Creating and following a budget
  • Living within their means
  • Keeping their debt ratio at or below 30% of income (amount of debt compared to income)
Monitor your total debt service ratio
"Being transparent about your financial situation is one of the most important steps to improving your financial situation," says Liersch.
That also means letting go of the competitive side of spending. "Once you admit that keeping up with the Joneses requires taking on far too much debt, the need to keep up with them become less important—and is no longer a financial and emotional drain," he says.
What you can do now: Read more about managing your debt so you can find the money you need to invest for the future.
Ultimately, successful retirement investors make deliberate efforts to keep their savings on track no matter what life throws their way. They're flexible and adaptable—even adjusting their definition of retirement if necessary. Don't hold too tightly to a single plan.
"Life throws people many curve balls and it's hard to predict what might thwart your plans," Laster says. "So be flexible and check back at least once a year to make sure you rework your plans as things change."
Next steps

1 Keep in mind that systematic investing cannot guarantee a profit or prevent a loss in declining markets. Since such an investment plan involves continual investment in securities regardless of fluctuating price levels, you should consider your willingness to continue purchasing during periods of high or low price levels.

2 Neither Merrill Lynch nor any of its affiliates or financial advisors provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.

3 Asset allocation and diversification do not ensure a profit or protect against loss in declining markets.

Investing involves risk. There is always the potential of losing money when you invest in securities.